Why bandwidth caps could be a threat to competition

Over the last four years, a number of leading network providers have adopted …

Since the first dot-com boom, unmetered Internet access has been the industry standard. But recently, usage-based billing has been staging a comeback. Comcast instituted a bandwidth cap in 2008, and some other wired ISPs, including AT&T, have followed suit. In 2010, three of the four national wireless carriers—Sprint is the only holdout—switched from unlimited data plans to plans featuring bandwidth caps.

To many people, the argument for metered bandwidth seems intuitive and obvious. Bandwidth is a scarce resource, and advocates argue that usage-based pricing encourages efficient network use and ensures that heavy users pay their "fair share."

Yet the economics of metering aren't as simple as they might appear. Companies are often surprised by how well flat-rate billing schemes work. Customers love them, and flat-rate billing encourages more intensive use of networks that sit idle most of the time.

Network providers insist that they are simply trying to cope with rapidly rising demand for bandwidth. But critics charge that the trend toward bandwidth caps is driven by more sinister motives, especially in the residential broadband market. In this story we'll examine the economics of metering and try to explain why it has suddenly come back into vogue.

The economics of metering

Bandwidth is perishable. You can't save it now to use later. As a result, most networks are heavily congested at some times and well below capacity at others. During periods of peak demand, bandwidth is scarce and each additional user imposes costs on others. The rest of the time, bandwidth is plentiful and adding an additional user to the network is almost costless.

That means that monthly bandwidth consumption is a crude way to measure a user's contribution to congestion. For example, residential broadband networks tend to experience peak demand in the evening, when people are at home watching videos. Customers who generate most of their traffic at other times of day—for example, a woman who works from home and generates most of her traffic during the day, or a teenager who downloads large files from BitTorrent late at night—might generate a lot of traffic, but have a negligible effect on other users.

Metering encourages users to minimize their network use at all times, even if the network has plenty of spare capacity most of the day. While usage-based billing schemes may help reduce congestion at peak periods, it wastefully discourages people from using the network the rest of the time.

Mental accounting costs

Perhaps the biggest disadvantage to usage-based pricing is that customers hate it. A study written by Andrew Odlyzko and others and released last week by Public Knowledge finds that many consumers have a surprisingly strong preference for flat-rate billing. For example, "some of the most careful studies of user preferences had been done by AT&T in the 1970s, in attempting to move customers from flat rates to metered ones for local service. To the surprise of AT&T managers, telecom economists, and regulators, these studies revealed that most light users—who would have saved money with UBP—continued with flat rates."

A key factor behind users' decisions to stick with flat rates was "decision fatigue." Many users were willing to pay a premium to avoid worrying about whether they were wasting money by spending too much time on the phone.

Early online service providers had the same experience. One of the first online services to offer a flat-rate option was AT&T's WorldNet. Tom Evslin, who was running WorldNet at the time, reports that customers would typically switch to the $19.95 flat-rate option when their monthly charges reached about $12 per month. And surprisingly, "their usage (as measured by time online) did not increase, so they were simply paying extra to satisfy their preference." The flat-rate plan was a win-win deal for both AT&T and its customers.

Competition from AT&T forced AOL to adopt its own flat-rate option. AOL CEO Steve Case has said that AOL's hourly billing scheme was one of its most unpopular features. According to one story recounted in the PK report, "Case had heard from one AOL member who insisted that she was being cheated by AOL's hourly rate pricing. When he checked her average monthly usage, he found that she would be paying AOL more under the flat-rate price of $19.95. When Case informed the user of that fact, her reaction was immediate. 'I don't care,' she told an incredulous Case. 'I am being cheated by you.'"

This might seem irrational if we assume that keeping track of usage is costless. But it isn't; people are willing to pay extra to avoid the "mental accounting costs" of metered schemes.

Indeed, concerns about "mental accounting costs" likely explain why most usage-based billing schemes recently have adopted usage caps rather than trying to charge a fixed per-minute rate. If usage caps are set high enough that most users never reach them, then the average user can treat the service as if it were unlimited.

Competition concerns

Indeed, that was precisely Comcast's argument when it instituted its 250GB bandwidth cap in 2008. It argued that this limit was so generous that most users would never have to think about it.

Since then, network speeds and the supply of high-definition video content have increased, and the bandwidth cap hasn't budged. The 250GB limit adopted in 2008 is still in place.

Comcast portrays its bandwidth cap as so generous that only "extremely high data users" need to worry about it. But Odlyzko and his co-authors note that "Comcast's own estimate for the amount of data required to replace its pay-television offering with an over-the-top competitor is 288GB per month." That suggests that a typical Comcast cable user who decided to "cut the cord" and consume an equivalent amount of content on Netflix, Amazon Instant, or other online streaming services would be at risk of having his Internet access cut off.

"The nature of the competitive threat posed by usage-based pricing flows from the fact that most service providers offer both Internet access services and applications such as video and voice that rely upon (or can rely upon) that Internet access," the PK authors write. "Although flat fee pricing might help maximize Internet access service revenue, doing so could potentially undermine application revenue."

In other words, the broadband cap may have less to do with managing congestion on Comcast's data network than with making over-the-top video services like Netflix and Hulu unattractive for heavy television users who are the most lucrative customers for Comcast's paid video services.

The authors propose several measures that can help to ensure that usage-based pricing is only used to deal with actual congestion problems rather than a way to stymie competitive services. They call for greater transparency regarding data caps. They want carriers to disclose more information about how the caps are determined and enforced, and they want users to have a reliable way to tell how much bandwidth they've consumed in a month.

They also call for more "granular" metered policies. Because congestion is only a problem at certain times of the day, they argue that usage-based billing should only be in effect at those times. Cell phone companies have long followed this approach for voice minutes—users are given a certain number of minutes each month for use during business hours. Cell phone providers offer unlimited voice minutes on nights and weekends when congestion isn't a problem. Public Knowledge argues that a similar strategy would work well for broadband networks.

78 Reader Comments

Just because your residential neighbourhood has plenty of bandwidth doesn't mean the same is true for the data centre on the other side of the world that you are connecting to.

You're not just paying for your own connecting "to the internet", you are paying for your connection to every server in the world. Since that part of the internet probably is not owned/operated by your own ISP, they have to pay for access to it - and often they are paying by the gigabyte.

And at least in our data centre, there is no such thing as "off peak", our traffic is consistent 24/7/365, with occasional spikes (as in once a month or so) of high traffic.

There is no conflict of interest in australia, most ISP's are not in the television/movie business (some are beginning to offer IP TV though), and we have had bandwidth caps from day one. I don't see what the problem is.

If the majority of their customers start streaming 1080p TV shows every day at 8pm, or stay at home mum's leaving their IP-based TV on all day long every day, then they are going to have to spend billions of dollars upgrading the network (we've just had $20 billion committed to ours). That money's gotta come from somewhere.

I've only had my new ipad for a month and a half and I really hate metered internet usage. I burned through 2gbs in a day watching NCAA basketball on my LTE connection. So I quickly learned that having a great device with internet anywhere was pointless when you could so easily use it up.

I have my iPhone 4S through Sprint and I swear their EVDO-A felt faster when I had their service two years ago with a Windows Mobile 6.5 phone. So Sprint may be unlimited but I'd be hard pressed to hit a limit if they had it.

And then I have Cox at home. I have no idea if I have a limit or not because in the 6 years I've had their service, I've never been able to login to my account. I just get the bill and use online bill pay to mail them a check each month. I think that if they have a limit, I would have hit it.

And then I have Cox at home. I have no idea if I have a limit or not because in the 6 years I've had their service, I've never been able to login to my account. I just get the bill and use online bill pay to mail them a check each month. I think that if they have a limit, I would have hit it.

As far as I know they don't. I've downloaded over 500GB in a week and they have never bothered me. I live in a town with cox surrounded by Comcast towns and have never had to deal with the crap that my Comcast friends have dealt with between caps or speeds being limited. Cox also occasionally sends me a letter saying I've gotten free speed upgrades so can't complain about that. Makes me afraid to move.

One reason I usually don't buy the idea of metered bandwidth is that the price of Gigabyte is usually much higher when you pass the limit and this if such option is available.

For example if I pay $50,00 for a plan with 250 Gb limit, it would be natural do expect for me to have an option to pay 50/250 = 20 cents per extra Gb. Usually what happens is a much higher price for the extra bandwith when that option is available (comcast does not really give you that option if I understand well, other providers, like Net Virtua in Brazil, decrease your rate from 10Mbs to 512Kbs).

If the problem was simply to recover the cost why not ask a reasonable price for the extra bandwidth? The system is set up in such a way such that you should not pass the cap period. For this reason it is clear to me that the reasons are not simply economical, they want to create artificial monopolies.

Wow, talk about misdirection. The economics of metering is the depreciation of the fixed assets, the machines, the buildings, etc. plus the operating costs, the electricity, the salaries of those maintaining the machines, etc. What does bandwidth have to do with cost? Nothing. The only problem you have with bandwidth is that your customers might switch carriers if you run out too often. But since you have a monopoly, all they can do is hire a middleman that introduces a slight delay in off-peak hours. During peak hours, they still have the same delay. So, again, what does bandwidth have to do with cost?

Here's an idea: Don't sell bandwidth you don't have. That's really what this all boils down to.

They want to sell 100Mbps connections, then assume everyone will actually use 5Mbps during peak hours*. So, rather than saying "Up to 100Mbps, minimum 5Mbps", they say "100Mbps, but you can only download 250Gb", and count on the consumer to hold themselves to an average is less than 250Gb per billing cycle.

If I had the ability to dictate, I would say they have to advertise sustained rates in big numbers (instead of maximum), and they can't oversell based on that sustained rate.

Of course, the consumer backlash would be stupendous, since everyone's accustomed to thinking in terms of "this is what I can get" instead of "this is what I really will get". I don't have a lot of sympathy; they're the ones that cut the fuse, they deal with the petard.

Wow, talk about misdirection. The economics of metering is the depreciation of the fixed assets, the machines, the buildings, etc. plus the operating costs, the electricity, the salaries of those maintaining the machines, etc. What does bandwidth have to do with cost? Nothing.

No. That's the cost structure for your ISP's own network, which is a tiny tiny piece of the entire internet.

For the vast majority of the network your packets are travelling over, your ISP has to purchase access from other companies, at whatever cost structure that other company chooses. Often they're paying for the amount of data and what time of day and what priority level it has.

Boskone wrote:

Here's an idea: Don't sell bandwidth you don't have. That's really what this all boils down to.

What do you mean by "bandwidth you don't have"? Are you suggesting a company with 200,000 customers running at 10Mbit each should be able to handle 100% load on every part of their network?

What happens if all 200,000 decide to connect to youtube at the same time? Or what if they *all* decide to connect to a *single* torrent user's home IP address? You really think the entire network needs to be capable of 2,000Gb/s? Even a home bit torrent server needs 2,000Gb/s, just because all the people connecting to him have paid for 10Mb each?

That's not even theoretically possible. Every single switch/router/server in the network has a different capacity and none of them can handle all the traffic at once. The only question is how regularly they hit their maximum capacity, and that depends on customer habits which are continuously changing.

Wow, talk about misdirection. The economics of metering is the depreciation of the fixed assets, the machines, the buildings, etc. plus the operating costs, the electricity, the salaries of those maintaining the machines, etc. What does bandwidth have to do with cost? Nothing. The only problem you have with bandwidth is that your customers might switch carriers if you run out too often. But since you have a monopoly, all they can do is hire a middleman that introduces a slight delay in off-peak hours. During peak hours, they still have the same delay. So, again, what does bandwidth have to do with cost?

Those are fixed costs. The economics should be X+Y=Z, where:X is the fixed cost of equipment, line maintenance, building costs, etcY is the cost of moving the allocated bandwidthZ is the break-even cost of bandwidth

"Just because your residential neighbourhood has plenty of bandwidth doesn't mean the same is true for the data centre on the other side of the world that you are connecting to."

It's a data center. That its job. An uncapped residential service on the other side of the planet will not affect its load. You said it yourself; it's a continuous load with monthly peaks. That's not residential consumption. If the peering arrangements are proper the load get distributed around anyway. Kinda like an...Internet.

Access to the net/power is fundamental to economic well being of the country and a public good. I think the first point is self explanatory and for the second point it follows from the fact that cables which deliver either access to the net/power all go through public and private property not owned by these private companies. In exchange for granting monopolistic advantages to these private companies the government has a duty to protect the aforementioned public interests.

I think the easiest way to do that is to decouple the power/content/access generation companies from the those who provide the pathways for these services to be delivered. In the case of the internet access the company which lays down the fiber/cable cannot also be an ISP. Instead they can charge ISPs for accessing the network they own. This will allow for (a) choices to consumers in whom they buy access to the internet from (b) prevent the conflict of interest between providers and content generators (e.g. Comcast/Disney). The other way is for the government to lay down the cables and then charge ISPs for access to them.

I think this basic principle works not only for cable providers but also for cell phone/airwaves and power generators. Please let me know if there is something fundamental I am missing here. It seems me that what is severely crippling the access to the net/power is the lack of competition.

It's a data center. That its job. An uncapped residential service on the other side of the planet will not affect its load. You said it yourself; it's a continuous load with monthly peaks. That's not residential consumption. If the peering arrangements are proper the load get distributed around anyway. Kinda like an...Internet.

Data Centre or not, the network it's connecting to is mostly paid for by the residential fees. ISP's recently tried to get web service companies to pay for some of their network costs, and the interwebz went nuts about it, so they stuck with residential fees funding the majority of the network.

Those peering arrangements you mention are exactly what I'm talking about. They're usually not free, they send each other a cheque each month to cover each other's running costs. How much depends on the amount of traffic.

With my current Rogers Express internet plan, I have a monthly bandwidth cap of 70G and a speed of 18Mbit/s. This means that I can use my internet connection for 17.12 minutes per day before I start incurring overage charges. Incidentally, that comes out to paying $4.50 per hour of usage.

The most expensive Rogers Ultimate plan is even worse though. 250G at 75Mbit/s limits people willing to pay $100 a month to 14.68 minutes of use per day. That's $13 an hour for internet service. And I thought net cafes were bad.

With my current Rogers Express internet plan, I have a monthly bandwidth cap of 70G and a speed of 18Mbit/s. This means that I can use my internet connection for 17.12 minutes per day before I start incurring overage charges. Incidentally, that comes out to paying $4.50 per hour of usage.

Fortunately, most internet traffic doesn't last for 17.12 minutes, usually it's more like 0.00000042 seconds then it pauses, then then it activates again (look up how TCP/IP works... it's crazy). 17 minutes lasts a long time when you break it up like that.

Good luck watching a 70GB movie in 17 minutes. Myself, I prefer not to watch blueray videos on 8x fast forward.

I'll tell you the reason why flat-rate plans always win, because pay-per-use quantifies the time you spend using the service and offers you the ability to compare it to other charges. If you know it costs you $5 a week watching videos at night, you can compare that usage with other items in your personal budget.

Take the AOL example, the woman paid hourly and felt cheated because she compared the hourly cost to something else that took an hour.

Whereas under a flat-rate plan, you have no way to quantify or compare the service's individual usage to anything else, it's the same monthly rate so no comparison between months and compares against typically much larger numbers when thought of in terms of a monthly expense (rent, groceries, etc.).

It's not a rational process, or necessarily conscious, but this kind of thing happens all the time.

Especially in a society that places too much stress on decisions and preferences.

With my current Rogers Express internet plan, I have a monthly bandwidth cap of 70G and a speed of 18Mbit/s. This means that I can use my internet connection for 17.12 minutes per day before I start incurring overage charges. Incidentally, that comes out to paying $4.50 per hour of usage.

The most expensive Rogers Ultimate plan is even worse though. 250G at 75Mbit/s limits people willing to pay $100 a month to 14.68 minutes of use per day. That's $13 an hour for internet service. And I thought net cafes were bad.

That logical fallacy in your argument is so large it's incredible.

Just because I have a faster connection doesn't mean i'm going to use it all in one sitting. Movies don't get larger because your connection is faster nor do they play faster.

To the author of this article (and also the authors of the study), one thing to look at would be the UK market.The UK market is all over the place and has had various developments over the last 5~10 years in terms of what is available and what limits and terms providers are putting on their connections.

Back in the day, it used to be unlimited. Then for some types of service it moved to limited.

The main types of service now (afaik) are basically:Actual unlimitedCapped with a flat cap for the monthCapped during certain times, but unlimited during others (e.g. 40GB/mo during "peak" hours of f.ex 5pm to midnight, unlimited from midnight)Restricted during peak hours, but otherwise unlimited. E.g. you have 3GB you can use at full speed during peak times (e.g. 4pm->midnight) and when you exceed that 3GB, you are then capped to half/quarter of your connection speed. The rest of the time is unlimited.

As the UK market is arguably more developed than the US market in terms of types of service offered and the way competition has been forced to develop (by the main telco provider having been government owned until the 90s, and forced to allow third party access to its equipment since it didn't originally pay for it), these different types of service have been developed as a method of competition on often essentially the same network.

Having a flat cap, as noted by the authors of the study, isn't "right", since it doesn't solve the problem.Solutions such as capping bandwidth during peak times are arguably a much better solution, and this also doesn't punish heavy users by restricting them wholesale, but encourages them to use bandwidth at the times when it's most available, and restrict their activities in peak times, which is precisely what you want from a network management perspective.

It's a data center. That its job. An uncapped residential service on the other side of the planet will not affect its load. You said it yourself; it's a continuous load with monthly peaks. That's not residential consumption. If the peering arrangements are proper the load get distributed around anyway. Kinda like an...Internet.

Data Centre or not, the network it's connecting to is mostly paid for by the residential fees. ISP's recently tried to get web service companies to pay for some of their network costs, and the interwebz went nuts about it, so they stuck with residential fees funding the majority of the network.

What?

If I had to guess, I assume that Netflix's data centers' internet connections are paid for... by Netflix. Am I wrong?

Those peering arrangements you mention are exactly what I'm talking about. They're usually not free, they send each other a cheque each month to cover each other's running costs. How much depends on the amount of traffic.

And the cost per gigabyte is trivial. The overages ISPs charge are thousands of percent higher. If peering costs were actually the reason, you'd see caps and overages all over the place not just in countries were the last mile is in the hands of a few incumbents.

This doesnt even look at the effect upon websites. How many users would block ads because of this? I certainly would, all the pictures/animations/vids that load every time would add up to a lot of costs. What would this do to the plethora of free (paid for by ads) sites? I imagine many would end up shutting down.

Just because your residential neighbourhood has plenty of bandwidth doesn't mean the same is true for the data centre on the other side of the world that you are connecting to.

You're not just paying for your own connecting "to the internet", you are paying for your connection to every server in the world. Since that part of the internet probably is not owned/operated by your own ISP, they have to pay for access to it - and often they are paying by the gigabyte.

And at least in our data centre, there is no such thing as "off peak", our traffic is consistent 24/7/365, with occasional spikes (as in once a month or so) of high traffic.

There is no conflict of interest in australia, most ISP's are not in the television/movie business (some are beginning to offer IP TV though), and we have had bandwidth caps from day one. I don't see what the problem is.

If the majority of their customers start streaming 1080p TV shows every day at 8pm, or stay at home mum's leaving their IP-based TV on all day long every day, then they are going to have to spend billions of dollars upgrading the network (we've just had $20 billion committed to ours). That money's gotta come from somewhere.

Don't be ridiculous. The cost of bandwidth in data centers is 3 orders of magnitudes lower than what is charged to residential users. And most of the major ISPs with large networks get essentially free peering agreements. I'm not entirely certain why you're trying to spread around misinformation.

Well, I'm currently in New Zealand on business, and from the sound of the poster above from Australia, things are similar there.

I HATE HATE HATE the internet here. EVERYTHING is metered, and bandwidth caps are incredibly low. Yes, I've become painfully aware of just how much data I use while here. If I were to purchase internet from the hotel I'm staying at, it would be US$25/day. That sounds a little high to those of us used to internet being included in the price of the hotel room, but it is what it is. However, once you realize that that $25/day is for 100MB (yup, MB) of data, it's kinda crazy. It's much cheaper to go pay Vodaphone $50 for 2GB of cellular data and call it good. I travel throughout the Americas and Europe, and this is the most insane policy I've ever encountered. Even the home connections advertised on TV are metered, and people just accept it.

Considering I'm just upgrading my unmetered FTTH connection to 90Mbps/90Mbps U/D (from 10/10), it feels like I'm in a 3rd world country - and every other aspect of NZ is awesome - I really love the place. But the internet/data mindset here is just crazy.

Bandwidth caps have nothing to do with capacity. They are only a means of stopping competition for other services (ie TV and Movies).

This was briefly touched on the article, showing that it would take on average 288GB per month to replace Comcast with Netflix and other services, so they make the cap 250GB.

I don't know how it happened, but we allowed the ISPs to become content owners, and as soon as that happened, the internet became their competition, so rather than selling us better services, they keep trying to claw back what they sells us.

Pretty much everyone with a cable modem, has a competing service from their cable company called the Set Top Box. On it, you can stream movies and TV from your cable company. Because they can make a fortune doing this, why would they want to sell you good internet so you can get something else?

There is no conflict of interest in australia, most ISP's are not in the television/movie business (some are beginning to offer IP TV though), and we have had bandwidth caps from day one. I don't see what the problem is.

Telstra's Bigpond the largest ISP in Australia is a 1/3 owner of Foxtel of the largest pay-TV provider. Foxtel was founded as a joint venture between News Corp and Telstra (FOX-TELstra) back in the mid-1990s.

Telstra offers numerous uncapped online media services for its Bigpond ISP customers. For example Bigpond customers can rent unmetred a pay-per-view a movie using Bigpond Movies. But if they used a competitor service from say Google, Quickflix or Apple to rent that same film, the stream or download would be metred by Bigpond and counted against a customers data-cap.

Does Comcast actually enforce that cap? I average about 0.5TB a month, have never been under 250GB, and never heard anything from Comcast. Just curious...

It's a soft cap, that seems to depend on your market. As I understand it, the top 5% of users who go over the cap each month get a letter. Too many letters in some time period and you get cut off.

I average 300GB per month and regularly break 500GB; I've never gotten anything.

I spoke to someone in a smaller town who said he was disconnected after going over 250GB three months in a row.

It also depends of competition in your area, if you have other options like U-Verse in your area Comcast looks the other way, I pull around 300 to 500GB a month and have never herd a thing living in the suburbs of Chicago were I have the choice of, U-Verse, multiple DSL providers, Clear Wire, and Comcast. I have friends in Texas and other parts of IL who have gotten warning letters for just going over 10GB on there caps and Comcast is the only High Speed Choice...

Bandwidth caps have nothing to do with capacity. They are only a means of stopping competition for other services (ie TV and Movies).

This was briefly touched on the article, showing that it would take on average 288GB per month to replace Comcast with Netflix and other services, so they make the cap 250GB.

I don't know how it happened, but we allowed the ISPs to become content owners, and as soon as that happened, the internet became their competition, so rather than selling us better services, they keep trying to claw back what they sells us.

Pretty much everyone with a cable modem, has a competing service from their cable company called the Set Top Box. On it, you can stream movies and TV from your cable company. Because they can make a fortune doing this, why would they want to sell you good internet so you can get something else?

Yep, 100% correct.Cable companies and their Hollywood overlords want to charge $3.99 per movie just like in the old Pay per View days. Not only that, with Internet, you can bypass their garbage alltogether. This is all about control and always has been about control. Whats worse is that our govt cronies are in bed with these folks because bribes, eh, contributions and lucrative positions after "public sevice" are too good to pass up. They laugh all the way to the bank.

I would like to give just a little info on how Canada isn't exactly a cut and dry situation:

I lived in vancouver all my childhood, and up until a few years ago. They always had, and when I last checked still do have bandwidth caps per month. Moving to Halifax, Eastlink is the biggest player in town and I'm paying ~$70 a month for 15Mbps with unlimited bandwidth per month. Different provinces have different deals, it's the national companies that really screw you over.

As an aside, for cellular services Wind Mobile is basically the bee's knees. With operations in Alberta/Ontario, it's $40 a month for unlimited Canada talk/text/data. Never used it, so I can't say how good the data rate is, but at least it's unlimited.

Wow, talk about misdirection. The economics of metering is the depreciation of the fixed assets, the machines, the buildings, etc. plus the operating costs, the electricity, the salaries of those maintaining the machines, etc. What does bandwidth have to do with cost? Nothing.

Abhi Beckert wrote:

No. That's the cost structure for your ISP's own network, which is a tiny tiny piece of the entire internet.

For the vast majority of the network your packets are travelling over, your ISP has to purchase access from other companies, at whatever cost structure that other company chooses. Often they're paying for the amount of data and what time of day and what priority level it has.

You certainly have a dedication to spreading misinformation. What you are talking about is transit costs. Peering has traditionally been no cost between ISP's. The big to do you discussed in another comment was when Comcast requested a fee for Level 3's CDN.

Long story short. What you describe is not accurate in the the least and not even close to how the internet actually works.

Unlimited does not exist, even when you are not capped with a fixed rate you are by the speeds already. This means that you can already know your MAX transfer per month.

If you happen to have 10 Megabits, and lets say your ISP does not put a transfer limit, you are indeed on a limit already. Using it 24/7 which is not realistic you could never use over 3200 GB a month, that if you don't burn your cheap home router first.

Yes, its true most people prefer unlimited so they don't need to care about going over the limit, but do the same people then prefer a lower speed for unlimited?

Do you prefer a 10 Mbit connection with a 250 GB transfer cap per month or 2 Mbit unlimited?

Guess what? Most people will go with the first option.

As speeds are getting higher and higher, caps start to appear for a single reason. Economics. Everyone that is in the network industry knows bandwidth is not free. Do you think a 1 gigabit connection from lets say Level 3 is free? Of course not, it costs money. So does 1 gigabit port switches, the people that maintain this, the software, the power, etc.

People think bandwidth has no costs and this is a myth. It has huge costs, costs deploying the whole infrastructure in the first place and then to keep it running.

The reason why caps are starting to appear is because speeds are just high today to keep with the unlimited plans and companies start to realize that even a few abusers can make their pockets hurt. And tendency is to keep using more and more now with Youtube, Netflix, etc. So not only do users use more bandwidth today, but the higher speeds mean more data transferred each month and while Internet speeds get faster prices stay the same or drop.

ISP and providers should just give people a choice. Very fast speeds, limited transfer or unlimited with slower plans. On the end its exactly the same. The ones that use them 24/7 will not worry about caps but will end up with a slower line. The ones which don't need to push much transfer but want the best speeds when they use the net, will go with the high speeds but metered transfers plans. And for the ones that want the high speeds without caps, well, they need to pay the premium prices. You cannot expect to have the fastest and free. This means unlimited. I wish we all could but the truth is that bandwidth costs money.

The guy that said don´t sell the bandwidth you don't have is actually correct in some points. ISP are overselling just like hosting companies. They never expected the explosion of video and multimedia content and from one day to another people started to actually use their full speeds. In every country the trend was exactly the same. ISP started to offer more and more speeds, for less and less money, of course all marketing. Because math said most people never use what they paid. Then Youtube and other stuff started to appear. Do you think its a coincidence that speeds are almost the same in the last 5 years? In almost every country and prices are not getting lower or speeds are not duplicated every second year anymore.

Well, because they mostly did their math wrong. People are using Internet and allot more, they watch movies now, and they are actually using their bandwidth. Netflix, youtube, etc. So yes, he is right when he said "Don´t sell bandwidth you don't have"

Yes, sure that company in Cali rolling the 1 Gbit has all the bandwidth in the world right? Wrong.

You can push virtually unlimited speeds on a fiber optic cable, so why do companies stay with fixed limits like 1 Gigabit and 10 gigabits?

Answer: End devices.

The end devices are the limits, not the fiber and not the cables. They are limited and cost money as well, otherwise ask Cisco how they are making their money.

As speeds are getting higher and higher, caps start to appear for a single reason. Economics. Everyone that is in the network industry knows bandwidth is not free. Do you think a 1 gigabit connection from lets say Level 3 is free? Of course not, it costs money. So does 1 gigabit port switches, the people that maintain this, the software, the power, etc.

That doesn't explain how that California based ISP is able to offer un-capped 1Gbit internet for $75/month while still maintaining good pings.'

Or why my small town private ISP is able to offer 25/25($50/month), 50/50($90/month) fiber uncapped, and 200/200 uncapped for an unannounced price in a few months. Heck, that even comes with a /28 static block and a 10ms ping to Chicago(Level3). Residential.

We've had beyond crappy bandwidth caps forced down our throats since 2002-2004 when Rogers started pushing a maximum cap of 35 Gigs and charged an arm and a leg for higher tier packages and overage fees.

Check out Bell dot ca and Rogers dot ca if you want to see how bad our country has it for Internet price gouging. Bell and Rogers make up for 97% of our ISPs and Telecom businesses.

As speeds are getting higher and higher, caps start to appear for a single reason. Economics. Everyone that is in the network industry knows bandwidth is not free. Do you think a 1 gigabit connection from lets say Level 3 is free? Of course not, it costs money. So does 1 gigabit port switches, the people that maintain this, the software, the power, etc.

That doesn't explain how that California based ISP is able to offer un-capped 1Gbit internet for $75/month while still maintaining good pings.'

Or why my small town private ISP is able to offer 25/25($50/month), 50/50($90/month) fiber uncapped, and 200/200 uncapped for an unannounced price in a few months. Heck, that even comes with a /28 static block and a 10ms ping to Chicago(Level3). Residential.

I don't disagree with you, I find myself unsure about this. And I think skepticism is certainly healthier: Consumer suspicion of the industry is healthier than trust.

But! It's not a bandwidth issue, it's a bandwidth shared among households issue. The people getting 1Gbit internet are, almost certainly, not using it. People getting 10-20Mb probably are. I'm guessing that people getting 1Gbit are often using about 20Mb when they're using their connection.

And I think we all realize this is a peak use issue, not a "you used up all the downloadz" issue.

If the cable companies were serious about dealing with problems I'm guessing they'd track use and offer priority to users who have used the least. Or maybe that's not really possible?

As speeds are getting higher and higher, caps start to appear for a single reason. Economics. Everyone that is in the network industry knows bandwidth is not free. Do you think a 1 gigabit connection from lets say Level 3 is free? Of course not, it costs money. So does 1 gigabit port switches, the people that maintain this, the software, the power, etc.

That doesn't explain how that California based ISP is able to offer un-capped 1Gbit internet for $75/month while still maintaining good pings.'

Or why my small town private ISP is able to offer 25/25($50/month), 50/50($90/month) fiber uncapped, and 200/200 uncapped for an unannounced price in a few months. Heck, that even comes with a /28 static block and a 10ms ping to Chicago(Level3). Residential.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.